The Market Pulse

Today's session was highlighted by the index gapping lower at today's open. Much of the heavy selling was done, as usual, in the ON session, so the market could be manipulated by the few and U.S. participants could only sit on their hands for the session.... that is unless you were placing bullish bets.

Back on May 2, 2011, I spoke of two possible alternative counts that are still working behind the scenes. They are an:

a.  expanded flat

b. a running triangle

You can read more about these interpretations by clicking here then fast forward to today's charts and you'll see that these alternatives can't be ruled out at this time. I won't mention them on a daily basis until "price" confirms that either alternative is actually or had formed. What's important to take away from either of these patterns is that BOTH eventually lead to a new high.

In yesterday's edition of "Heard On The Street", I left readers with the above chart and  said, "that the decline from 1367.25 has been contained within a corrective price channel; is choppy and that four waves have been completed within it. I'm looking for w.(a) of w.z to terminate near 1318.25- 1317.75 for tomorrow's trade that will be followed by w.(b) up and a final round of selling to where w.z = w.w at 1294.25. Note nearby structural support of 1290.25 and the .618 retracement of 1290.50 are nearby."

We certainly got the decline, albeit a bit lower than I expected. Earlier today, I alerted Twitter followers that anyone who is running bullish counts should be concerned. Here's why.

1. Notice that RSI broke the key level of 40 indicating that the uptrend may have ended and that a change in trend is underway.  

2. Gaps are not typically found in first or w.a positions. They're usually found in w.3 that would imply heavy selling is on the horizon.

3. The weekly 2-4 trendline is now being challenged (see weekly chart above) for the first time and a break on a closing basis would be mean that a significant top had been made at 1367.25, even though I do not have a satisfactory way of labeling the structure and that a more bearish posture should be adopted.

For the ON session, expect a small countertrend move that targets 1321.25 or 1326.75. Look for an updated chart tomorrow morning.

Best of Trading

Heard On The Street

Announcement:

This weeks edition of Heard On The Street will not include a video as I had to travel over the weekend.


Identifying, the wave pattern in the $ES_F remains challenging and the market refuses to show it's had. Until it does, all we can do is focus on one wave at a time until enough data enables the wave structure to be clearly identified.

As of the close, my best interpretation remains an expanding diagonal. If you have been reading my posts you know that the pattern has flaws. See last Wednesday's blog post for details. As of the close of Friday's trade, the weekly chart level shows the current wave labeling. Notice this week's price bar , called a "spinning top" to candlestick traders. The small real body shows that neither the bulls or bears were able to gain control. The implication is that a spinning top immediately proceeds trend losing momentum.  If this was the case we would expect a move up for the early part of next week.

The above chart shows the bullish expectations, given the spinning top at the weekly chart level. However, when I look at Friday's session, I see weakness as price closed near the lows of the session. Add your favorite momentum indicator and you will see trending momentum to the downside that contradicts the weekly implications of the spinning top. RSI is currently 44.66 and hasn't broken the 40 level which would imply that a larger decline was unfolding.  Also note that the decline from w.iii circle has been contained within a corrective price channel; is choppy and that four waves have been completed within it. The structure SHOULD be viewed as corrective.

Ok, corrections can't end in four waves so here's what I think will unfold under a near term bearish scenario. I've only labeled the waves from w.4 red low but I want you to focus only on what unfolds from 1367.25 high. If a double zig-zag unfolds as I have indicated, then I'm looking for w.(a) of w.z to terminate near 1318.25- 1317.75 for tomorrow's trade that will be followed by w.(b) up and a final round of selling to where w.z = w.w at 1294.25. Note nearby structural support of 1290.25 and the .618 retracement of 1290.50 are nearby.

In conclusion, I've given a bulls and bearish view. What should be exciting to you if you are a bull is that we know that eventually the market will make a new recovery high under either view. Only a loss of 1290.50 would imply that a more significant decline was underway and that a more aggressive bearish posture would be adopted.

I hope you found this information helpful and best of trading.

The Market Pulse

As most investors and traders alike have been whipsawed by the up/down gyrations that the Market has dished out. Those following the Elliott Wave Principle know that the "Principle" provides the methodology to determine the Market's position.

Right or wrong on the wave count, the market has moved up/down in three wavelike structures from 1243.25. The expanding diagonal interpretation at the weekly and daily chart level has flaws. Absent of another identifiable wave structure, I'm sticking with it until price says I'm wrong.

 Looking at the daily chart, each decline (1335.75- 1290.25) and (1367.25 - 1316) is too short, i.e. that the retracements according to the guidelines call for w.ii and w.iv should be .66 - .81 % of the proceeding wave. Both waves never challenged the 61.8% retracement. Also, w.iii circle should be longer than w.i. it isn't.

One clue that w.v is underway should be an increase in volume. Although I haven't shown it, volume was light during today's session and will need to pick up or another flaw may be developing. However, PRICE ultimately has the final say. 

In conclusion, the count has issues but as long as we focus on one wave at a time we'll remain on the right side of the market. As of the time of this post, the Market has completed another three waves up from 1316 but looks to be making a fourth wave correction that would have us looking higher for the remainder of the ON session... possibly into tomorrow's daily session.

Let's see what tomorrow brings.

The Market Pulse

Not much has changed since my weekly forecast that I posted on Sunday. If you missed it, watch the video

The above chart includes today's session, where the market seesawed back and forth before logging another down day.  

.. and here is the daiy chart level. Notice that today's price action closed below  w.iv circle and thus the previous wave labeling has been rendered incorrect. However, the ending diagonal interpretation is still viable until 1290.25 is broken.

Sticking with the ending diagonal pattern, if w.iv is still unfolding,  then w.(c) = w.(a) at 1314.5 for ES1-057 and 1310 for the front month contract. I've redrawn the lower trendline to show how the elliott wave pattern would shift to that of a possible expanding diagonal, a pattern that is rare. There are other interpretations that will be discussed should 1290.25 be breached on a closing basis.

For tomorrow, look lower.


Best of Trading

Chart of the Day: EUR-USD

The EUR-USD has completed a trend sequence that began on 1/10/11... w.(B). Price action over the early part of May appears to unfolded in an expanding diagonal. This would explain the swift decline as price action of waves that follows a diagonal quickly retraces back to the origin of where the pattern began or 1.4157.

Dropping down to the intraday chart level, the structure of the expanding diagonal can be clearly seen.  The decline from 1.4936 counts well as an impulsive wave where w.(iii) is complete and w.(iv) appears to be unfolding in a triangle or possibly an expanded flat that adheres to the rules of alternation due to the fact that w.(ii) was a sharp corrective move. For today, look sideways or up to a maximum of 1.4617 for w.(iv). Thereafter another round of selling should draw prices to the 1.4157 target to complete w.i circle.

I hope you found this information helpful and...

Best of Trading